By Amanda Drane, Staff writer - 6h ago
Source: The Houston Chronicle
https://www.msn.com/en-us/money/markets/for-petrochemical-industry-the-recession-has-already-begun
As far as the petrochemical industry is concerned, the recession is here.
People are buying less. Restaurants and retailers are restocking less. Now, petrochemical companies are making less.
Dow, the world’s largest chemical company, said last week it’s slashing global polyethylene production by about 15 percent. Meanwhile, Houston-based Westlake Corp. is halting production of styrene — used in rubber and food containers — at its Lake Charles facility. The cutbacks, analysts say are the beginning of a recession washing ashore for chemical-makers in Texas.
“Investors to some degree still have been debating: Are we going to have these conditions?” Aleksey Yefremov, a senior chemicals analyst at Keybanc, the first of several firms to downgrade stocks for petrochemical companies over the past week. “My point: We already have them.”
The moves that petrochemical companies are making are temporary responses to warehouses filling with flexible plastics made of polyethylene such as coffee cup lids and to-go containers. It’s a sign, analysts say, that consumers are cutting back on such things as takeout dinners and iced coffees and buying fewer groceries. Walmart and Target said in earnings calls last month that “excess inventory” was a problem plaguing major retailers.
Demand for polyethylene and products made with it tends to mirror gross domestic product closely, said Chris Mudd, a chemicals analyst and managing director for Chiron Financial, a Houston-based energy investment banking firm.
It is inevitable that Houston-based chemical giant LyondellBasell will reduce plastics production, analysts said — if it hasn’t already. (The company wouldn’t comment for this story.)
“The writing on the wall is we’re heading into a recession that results in a slowdown of demand for a broad range of products,” Mudd said, pointing to two consecutive quarters of declining GDP. “What big companies will do is try to be responsible and slow down their production ahead of that so they don’t have a bunch of chemicals sitting in warehouses somewhere.”
Prices for polyethylene and polyvinyl chloride, or PVC, are backing off highs reached as the pandemic drove historic demand for takeout, consumer goods and materials used in housing construction, Yefremov said. Those markets are now cooling.
Just as demand for flexible plastics is softening, new polyethylene plants are coming online, contributing to oversupply. Shell is preparing to launch a new polyethylene facility in Pennsylvania. Bayport Polymers is expected to open its new polyethylene facility in Bayport later this year.
Declining demand is hitting harder in China, where the economy continues to be shaken by new COVID-related lockdowns, and in Europe, where soaring energy costs are making everything more expensive and cutting deeply into consumer budgets, Yefremov said.
U.S. chemical-makers usually benefit from cheap and plentiful domestic natural gas, but Europe’s shortages are upending that equation.
With winter approaching and demand for heating fuel rises, analysts say, sky-high energy prices will continue to raise the cost and risk of producing more chemicals in the months ahead.
amanda.drane@chron.com